Insurance

Every industry has its defining moments—the events that shaped it and formed it into what it is today. In the insurance industry, many of these relate to a fire or natural disasters that prompted people to see the value of insurance. Some also relate to world events and the laws and regulations that changed public perception or the way the industry operated. Throughout its history, insurance has helped alleviate risks, but it has not been an easy history. Consumers’ opinions of insurance have changed dramatically, and as a result, so have policies, companies, and regulations.

Benjamin Franklin and the Philadelphia Contributionship

Benjamin Franklin, known as a pioneer in many disciplines, including government and science, was also a businessperson who organized one of the first fire insurance companies in the United States. In May 1752, the Philadelphia Contributionship began operating. At the time, the word contributionship meant something that is given by several people for a common purpose.

When the Contributionship was first organized, Philadelphia was a small town with 15,000 residents and eight volunteer fire companies. The town had been designed with fire hazards in mind. Streets were wider than in other cities to allow fire vehicles to get through, and the homes were built with brick and stone. Franklin and others interested in establishing the company posted a notice in the newspaper, The Philadelphia Gazette, and soon the Contributionship was able to form a board of directors and begin operations.

The term of the first policies was seven years, after which the premiums were returned to the policyholders. The company wrote 143 policies in its first year. The company's policyholders had an iron plaque they could hang near the front door of their homes so that the fire brigade would be alerted that the home was "insured." Before writing a policy, the Contributionship conducted a survey of each home. This survey provided them with the information they needed to set the rate for the policy. Homes that were all wood were often not insured. In 1810, the Contributionship changed to perpetual policies: the policyholder's insurance remained in effect until canceled by the insured. The policies and principles of the Philadelphia Contributionship set the way for many practices in the contemporary insurance industry.

The Enactment of Social Security

The Great Depression led to another defining moment in 1935, when the U.S. government enacted the Social Security Act. A precursor of this act began after the U.S. Civil War. There were thousands of widows and orphans that needed financial support after the war. The Civil War Pension Program provided a pension to widows, orphans, and disabled veterans of the Civil War. These benefits continued into the early 20th century.

The states and other organizations, including insurance companies, began offering pension funds or programs throughout the early years of the century. However, the Great Depression was especially devastating to the elderly population in the country. According to the Social Security Administration, more than half of the elderly people in the country could not support themselves during the Depression.

On June 8, 1934, President Franklin D. Roosevelt created the Committee on Economic Security and announced his plan to institute a social security program in the United States. The Committee made its report to the president in January 1935 and the Social Security Act was passed into law in August 1935. It included a program to pay workers age 65 or older a continuing income after they had retired. The Social Security Act took away a large segment of the insurance business (pensions for widows, orphans, etc.) by providing government benefits that served the same need, so companies looked for other types of insurance to fill this gap.

Insurance companies read this as a signal that they needed to self-regulate in order to avoid more government intervention. In later years, due to inflation and the uncertainty of keeping Social Security, insurance companies began offering retirement plans and annuities.

Health Insurance Portability and Accountability Act

In 1996, The Health Insurance Portability and Accountability Act was signed into law. The law allows workers to carry health insurance from job to job. The act was enacted to protect consumers' sensitive health information. It provided guidelines that all employers, insurance companies, and medical providers were to follow to protect the health information of their respective constituents.

Although it was enacted in 1996, and most medical providers and insurance companies began operating according to its guidelines, it wasn't enforced until April 2003. One of the biggest concerns with HIPAA for health insurance companies was that HIPAA prohibited all group health plans (insured or self-insured) from denying coverage or charging higher prices based on health status. It also required health insurance companies to guarantee the renewal of all group plans, to both large and small groups. For insurance companies that offered health-care coverage for small businesses (those with fewer than 50 employees but more than one employee), it required that all products be available to every applicant. Under the act, all small groups had to be accepted and all eligible members of a group had to be accepted as well. Some of these concerns were addressed under the Patient Protection and Affordable Health Care Act, which may be revised or repealed/replaced by future presidential administrations.

Response to 9/11

The September 11 terrorist attacks sent shockwaves through the industry, not only costing insurers roughly $23.5 billion in property-related losses and $40 billion in other associated claims, but also causing insurers and re-insurers to take a hard look at how they would handle the risks associated with possible future terrorist acts. The Terrorism Risk Insurance Act (TRIA), signed into law by President Bush in November 2002, aimed to deal with the nearly incalculable risk posed by this threat. Among other things, the law defines a terrorism-related event as one with a minimum of $5 million in damages. It provides for the sharing of risk between private insurers and the federal government over a three-year period, with each participating company responsible for paying a deductible before federal assistance is available. If losses are incurred above the insurer’s deductible, the government is obliged to pay 85 percent. While the measure met with a considerable amount of grumbling from all parties involved, for the most part, the industry acknowledged that the plan at least allows for the potential risk to insurers from terrorism-related disasters to be quantified. The act was extended several times during the 2000s, and in 2019, Congress approved the Terrorism Risk Insurance Program Reauthorization Act, extending the TRIA through December 31, 2027.

Patient Protection and Affordable Health Act

In an effort to reform the current health-care system in the United States and to ensure that people who do not have health-care insurance benefits through their employer are able to obtain affordable coverage, the U.S. government enacted the Patient Protection and Affordable Health Act in 2010. Among its many provisions, the act expands Medicaid benefits to include all individuals and families that receive income up to 133 percent of the federal poverty level. It also guarantees insurance to applicants, preventing insurance companies from denying those with pre-existing conditions. It also guarantees that all applicants of the same age and in the same geographical location will pay the same premium.

The act established exchanges for states—online portals where residents can apply for health-care policies. States could either create their own exchange, or opt into a federal exchange. In its original form, the act required all adults not covered by an employer's health insurance plan or Medicaid to purchase health-care insurance or pay a fine through the Internal Revenue Service. This was known as the individual mandate. Congress eliminated the individual mandate in 2019.

Despite reducing the ranks of the medically uninsured, the Patient Protection and Affordable Care Act has been controversial for a variety of reasons. At times, the program has been troubled by poorly performing exchanges in some states and rising insurance premiums. Some insurance companies have exited particular state markets, reducing insurance competition in some markets (which has allowed some companies to raise premiums). The act has also created a variety of challenges for state governments, health-care providers, and businesses with 50 or more employees (those that do not provide health insurance to their employees must pay a penalty).

The Trump Administration sought to revise or repeal/replace the act, but it was ultimately unsuccessful because of disagreements between moderate and more conservative Republicans in the House of Representatives regarding the revision or replacement of the ACA, public outcry by millions of Americans due to potential loss of health insurance, and other factors. In 2021 the Biden Administration revoked two Trump-era executive orders that negatively impacted the ACA and implemented other steps to protect and strengthen Medicaid and the ACA.

Regardless of its drawbacks, the Patient Protection and Affordable Care Act streamlined the delivery of health care and has allowed previously uninsured Americans to obtain health insurance. The association America’s Health Insurance Plans (https://www.ahip.org) is a good resource for updates on the ACA. It says that “more than 44 million Americans have individual coverage, purchased either through ACA health insurance exchanges or directly from a health insurance provider.”

A future presidential administration may seek to revise or repeal the ACA, but this will be more difficult because so many people have benefited from the act. But even if Congress passes legislation to repeal parts of the ACA, and a future president signs it into law, it’s unlikely that the law will change immediately. Congress will need time to develop and implement a replacement plan, and the Internal Revenue Service will require time to develop and implement the new tax system that will be used with whatever law replaces the ACA. Depending on what steps a future presidential administration take regarding the act, it is hard to anticipate whether insurance companies view changing the ACA as positive or negative. If few changes are made, insurance companies may simply maintain the status quo. If insurance companies sense confusion by the administration, they may pull out of the exchanges (as they’ve been doing in recent years) in order to cut their losses.

COVID-19 and its Aftereffects

In late 2019, the coronavirus COVID-19 was detected in China and quickly spread to more than 180 countries, causing hundreds of millions of people throughout the world to get sick and the deaths of more than 6.8 million people (as of April 2023), as well as massive business closures and job losses. In the short-term, the COVID-19 pandemic negatively affected the health of individuals; employment opportunities at businesses, nonprofits, and government agencies; and daily life and the job search process. It also had a major effect on the insurance industry. Many insurance professionals were forced to work from home (telecommuting was already a trend in the industry, but it was greatly accelerated as a result of the pandemic). Some insurance companies delayed and even rescinded job offers, and many companies transitioned internships and fellowships to online-only experiences. Most companies conducted job interviews and career fairs and other recruiting events online. Insurance industry giants such as Aon cut salaries for a period of time; 70 percent of its employees had their salaries reduced by 20 percent, and the company’s executive officers took pay cuts of 50 percent. Nationwide Mutual Insurance Company announced that it would transition to a hybrid operating model that involved work-from-office in four of its corporate campuses and work-from-home in most of its other locations.

Estimates of insured losses in the United States and United Kingdom alone due to the pandemic range from tens to hundreds of billions. Losses varied by insurance company and type of policy. Since the SARS pandemic in 2004, some insurance policies were written to exclude coverage for bacterial- and virus-related losses. Other policies feature “all-risk” coverage, which would allow for compensation for losses incurred as a result of the pandemic. Insurance compensation for the pandemic is a hotly contested issue. Many COVID-related lawsuits are currently working their way through the legal system.

In early 2023, the Biden Administration rescinded the COVID-focused national emergency and public health emergency declarations and announced that the federal government would treat the coronavirus outbreak as an endemic threat to public health that could be managed through agencies’ normal authorities. Although COVID-19 remains a threat to human health and life, the availability of vaccines and treatments have significantly reduced the number of people who become severely ill or die from the virus. Post-pandemic, many companies continue to offer remote options to employees, or hybrid in-person/remote options.

In the long term, there will always be a need for insurance, although the industry certainly changed as a result of the pandemic. “You cannot run this economy without insurance,” said Joel Cavaness, president of Risk Placement Services, during an Insurance Business webinar. “Insurance professionals need to be there for their clients in one way or another [for them] to be able to operate …Things still have to be insured—people still need to be insured for their personal effects, people still need to get their business coverage, there still has to be workers’ compensation. We cannot run this economy without insurance.”